I mentioned earlier how managing directors and supervisory directors (jointly directors hereinafter) can prevent being held liable. What if it still happens? How can you defend yourself? What defenses can you raise when you as director are personally held liable?

First you have to bear in mind that every director can always be sued. This does not mean that he will also eventually be ordered to pay compensation. Nevertheless, such proceedings can take years, also in the cases in which you can already say right away that these proceedings lead nowhere. This costs a lot of money (to expensive lawyers such as I) and a lot of valium (prescribed by the family physician to stay calm). So prevention is better than cure.

Secondly, it makes a big difference whether you are held liable as director internally, by your own company so to speak, or externally, by someone who actually is an outsider. Neither case has presented itself much in Curaçao until now. However, I expect it to change rapidly in the next five years. Hereinafter I will just discuss internal liability for the time being.

If a managing director or supervisory director is sued internally, so by the company itself, the accusation is often (in legal wording) that a serious mistake has been made in the performance of the management duties (“improper performance”). For the main rule is that a director is allowed to make mistakes, as long as they are not serious. The first defense will consequently concern the question whether there is a serious mistake or (only) a mistake that another, normal director could also have made in those circumstances. There is no liability in the latter case.

A second defense is that there is no damage or causal relationship between the mistake and the alleged damage. A piece of land bought at too high a price -as appears later- can for instance also have decreased in value on account of market circumstances that were not expected at the time of the purchase. The mistake that the director failed to seek expert advice in advance is then not the cause of the damage.

Directors are also liable for mistakes of their co-directors. Lawyers call it “joint and several”. The idea behind it is that the board is collegial, just like the four musketeers, “one for all, all for one!” When liability is concerned, it is less fun than the story of d’Artagnan and his buddies. If the financial director makes a serious mistake, the commercial director can also be sued personally. In that case, however, the law gives him a special defense (the third I mention here): the director who proves that the improper performance is not attributable to him, also given his position and the period during which he has been in office, is not liable on the condition that he has not been negligent in taking measures to avert the consequences hereof. In simple words: you can defend yourself by alleging that the mistake was not in your area of expertise, but you subsequently have to make plausible that you have done everything to prevent (further) damage.

There is quite a catch here. Lawyers also say, “if the burden of proof is yours, you have already lost half the case”. The starting point of aforementioned joint and several liability is that all directors can be held liable for all mistakes, also those of co-directors. The directors who believe they should not be liable have the burden of proof to make it plausible. So they have already lost half the case. In short, prevention is better than cure!

Do you have a question about corporate governance yourself? Please e-mail it to governance@vaneps.com and perhaps your question will be discussed in the next column!